Grasim Industries VSF earnings growth to peak out – valuation inexpensive::Emkay

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Grasim Industries

VSF earnings growth to peak out – valuation inexpensive

ACCUMULATE

CMP: Rs2,193                                        Target Price: Rs2,600

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n     Grasim’s Q1FY12 EBIDTA at Rs3.53 bn (+17% yoy) marginally below estimates. PAT at Rs3.14 bn (+40%yoy) ahead of est., led by high other income and lower tax rate

n     29% jump in VSF realisations (Rs152/kg) help revenues but 18.5% decline in VSF volumes drag revenues growth to just 8%-below estimates 

n     Domestic VSF prices witness decline of 18-20% in last 3 months-Decline faster than expected- downgrade FY12E/13E earnings by 4.7%/2.7% cut TP to Rs2600

n     Though Grasim standalone earnings growth has peak out, FY11 low base for Ultratech is expected to restrict conso earnings decline. Valuations at PER of 9.2X FY12E & implied holdco discount of ~44% remains in-expensive- ACCUMULATE